Elliott waves and Cambridge

[Michael Perelman]

All the studies I have seen indicate a weak link between investment and
the interest rate, although the falling interest rate can set off a bubble
that will lift animal spirits -- as in the late 1990s.  But the direct
link with interest rates is very weak -- unless work since Eisner and
Chirinko has found otherwise.

On Mon, Sep 09, 2002 at 09:10:45AM -0700, Brad DeLong wrote:
> >Bradford DeLong wrote:
> >
> >>>Bradford DeLong wrote:
> >>>
> >>>>Will you allow me to say that lowering the interest rate is 
> >>>>likely to raise the number and aggregate total cost of investment 
> >>>>projects with positive risk-adjusted net present value?
> >>>
> >>>In theory, but why then do changes in interest rates do so little 
> >>>to explain aggregate investment?
> >>>
> >>>Doug
> >>
> >>
> >>Because other things--business cash flow, expectations of future 
> >>demand, animal spirits--are much more important? (Save in 
> >>construction, where interest rates do matter.)
> >
> >Exactly what I had in mind. So why does it matter much if changes in 
> >the interest rate affect the number of investment projects with NPV?
> >
> >Doug
> 
> Because it's the only effective lever of macroeconomic control that 
> we have, given the Congress's... limited... ability to conduct 
> discretionary fiscal policy in a timely fashion...
> 
> 
> Brad DeLong

-- 
Michael Perelman
Economics Department
California State University
Chico, CA 95929

Tel. 530-898-5321
E-Mail michael at ecst.csuchico.edu